Wednesday, October 7, 2009

Find below, issues for discussion for tomorrow's session, as identified by this week's group:

1. Discussing the history and purpose for the policy of reservation in India and analysing whether the judgment fulfils the underlying rationale to be achieved.2. Can NLS, being a "national institute" but not one of "national importance" extended its reservation to SCs and STs at the all India level?3. What is the rationale behind the Karnataka High Court's decision against National Law School?4. What is the nature of Article 341 and the Presidential Order of 1950 and what are their implications for reservation made by a state for SCs at the national level?5. What is ‘real equality’?6. What kind of interpretation has the court given the phrases ‘with relation to the state’ and ‘for the purpose of the Constitution’ in Art 341(1)?7. Has the court in the given case followed precedent with regards to the above two issues?8. Questioning the constitutionality of the reservation policy formed after the judgement. Is it in accordance to Art 14 and Art 19(1)(e) of the Constitution?9. The effect of judgement on admissions to NLSIU next year.10. Is our reservation policy faulty? Should we rather adopt a method like that in the US or South Africa? Or is their policy not applicable under our circumstances?

Tuesday, September 29, 2009

We will be discussing the issue of declaration of assets by judges this week. The prescribed reading is the judgment on the issue by the Delhi High Court (CPIO, Supreme Court of India v. Subhash Chandra Agarwal), WP (C) 288/2009, delivered on 2.9.09. It can be found on the Delhi High Court website (http://delhihighcourt.nic.in/).

The following is the write up on the Direct Taxes Code, and the session discussions:

I. Pranab Mukherjee said, upon entering his office, that his Ministry would release a draft bill for a completely new, simplified tax code within the first 45 days of his tenure. True to his word, the draft bill, called the Direct Taxes Code (DTC) has been released for public comment. While the promises of lower, stable rates of taxation have caused many to view the code positively; the DTC carries forward many of the shortcomings of the Income Tax Act, 1961 and brings in a fair share of problems on its own. The provisions of the new code and some of the policy considerations they throw up will be the central concern of this paper.

I will begin by discussing the objectives behind the new code and the reasons the need for it was felt. I will then look at the effect of the provisions of the code on non-profit organisations with a view to balancing anti-avoidance concerns with incentivizing public welfare.

NEED FOR CHANGEThe IT Act has become very complex and virtually unintelligible to the common (wo)man by virtue of a complicated structure, numerous amendments, frequent policy changes, and a multitude of judgments that gave varying interpretations to already undecipherable provisions. This complexity has not only increased the cost of compliance for the average tax payer, but also made it costly for the administration to collect tax. Lastly, the tax base has been eroded significantly due to an increasing number of exemptions and horizontal inequity.These are some of the reasons that the need for a simplified new code was felt.

The OBJECTIVES of the new code are therefore· Simplification· level-playing field for domestic and foreign tax players· equity and non-discrimination · removal of ambiguity to encourage voluntary compliance· stability in the tax regime· increase tax to GDP ratio· eliminating distortions in the tax structure,· introducing moderate levels of taxation and· expanding the tax base byo minimizing exemptions that have been eroding ito Reducing ambiguity that facilitates tax avoidance by making provisions clear and less liable to varying judicial interpretationo checking tax evasion.

It is important to observe that while some of the provisions of the new code are very similar, even identical to those of the IT Act, Pranab Mukherjee says in the introduction to the discussion paper released by the Finance Ministry that the new code is not an attempt to amend the old code and therefore should be read in isolation, rather than by comparing provisions of the old with the new. If the new code is to be read in this way, will the interpretation, understanding and plugging of the holes in the IT Act be extendable to the provisions adopted here?

This is significant in the context of the above objectives of simplifying the tax law in India, making it less ambiguous by reducing scope for varying judicial interpretation etc.Throughout my discussion on the provisions of the new code, I will argue that while the problems raised by their wording might have been plugged by judicial interpretation in the past, it is defeating the above objectives to the code to import the provisions verbatim in the new code. Rather, it would have served the objectives of the government better to incorporate judicial wisdom accumulated over the years into the new code by wording provisions better. In my opinion, clarifying some of these contentious issues in the bill itself in simple language would not have endangered the desired simplicity of the code. Instead, it would have furthered the goal of helping tax payers understand their liabilities and plan accordingly.

TAXATION OF NON-PROFIT ORGANISATIONS AND OTHER TRUSTSCurrently, registered NGOs are under the income-tax net, but not liable to pay tax. The general rule is exemption from tax if the purpose is charitable. Thus it is that charitable public trusts and foundations have been a popular vehicle among corporate houses to bring in huge tax benefits. In fact, there are presently over 70,000 trusts and charitable institutions registered with the Income-Tax Department and get tax exemption on their activities.

The new code makes significant changes in this regime by making exemption the exception and taxation the rule. Under the code, non-profit organizations will be liable to pay tax at the rate of 15 per cent regardless of the nature of their work. The phrase “charitable purpose” in the IT Act has been replaced by the phrase “permitted welfare activities” which seeks to narrow the scope to-o relief for the poor,o advancement of education,o provision of medical relief,o preservation of environment,o preservation of monuments or places or objects of artistic or historic interesto any other object of general public utility.But noto any activity in the nature of trade, commerce or business, oro any service in relation to any trade, commerce or business, for a fee or for any other consideration, irrespective of the nature of use, application or retention of the income from such activity.

An organization shall be treated as a non-profit organization if· it is established for the benefit of the general public; it appears that the onus will now be on the organisation to demonstrate, by leading evidence, that the benefit has actually reached the general public. The amount of documentation to be maintained to demonstrate this may be, in certain cases, impractical. Thus it seems that rather than simplify matters, the code might be creating additional complications.· it is not established for the benefit of any particular caste; the question that arises is whether a non-profit organization that works for manual scavengers, that tend to be dalits, would be excluded from the definition. It would seem that the judicial opinion on a similar provision in the old Act would apply here too, that such organization would not be excluded so long as it did not speak of itself as an organization dedicated to dalits. However, as I said earlier, I think it would serve the object of the code better to include that clarification in the code itself. Doing so would prevent unnecessary litigation and confusion thus increasing efficiency.· it is not established for the benefit of any of its members- here again arises the contentious issue of what qualifies as the benefit of any of its members. Will the organization be excluded if it works towards fighting AIDS and the co-founder has AIDS?· it does not intend to apply its surplus or other income or use its assets or incur expenditure, directly or indirectly, for the benefit of any interested person· it is established for carrying on permitted welfare activities;· it actually carries on the permitted welfare activities during the financial year;· the actual beneficiaries of its activities are the general public;· any expenditure by the organisation does not enure, directly or indirectly, for the benefit of any interested person;· the funds or assets of the organisation are not used or applied or deemed to have been used or applied, directly or indirectly, for the benefit of interested person;· the surplus, if any, accruing from its permitted activities does not enure, directly or indirectly, for the benefit of any interested person;· the funds or the assets of the non-profit organisation are not invested or held, at any time during the financial year, in any of the forms or modes specified in section 91;· it maintains such books of accounts and in the manner, as may be prescribed;· it is registered as such under section 93; and· it obtains a report of audit in prescribed form from an accountant before due date of filing of the return in respect of,- (A) the accounts of business, if any, carried on by it in accordance with the provisions of section 84; and (B) its accounts relating to the permitted welfare activities in a case where the gross receipts referred to in section 89 exceeds one lakh fifty thousand rupees;

The tax liability of a non-profit organisation shall be 15 per cent of the aggregate of- (i) the amount of surplus generated from the permitted welfare activities; and(ii) the amount of capital gains arising on transfer of an investment asset, being a financial asset;The amount of surplus generated from the permitted welfare activities shall be the “gross receipts” as reduced by the “outgoings”.The “gross receipts” shall be the aggregate of the following:-(i) The amount of voluntary contributions (this would mean that donations would be taxable in the hands of the receiving organization though the donor would still enjoy exemption to some extent) received during the financial year;(ii) Any rent received in respect of a property consisting of any buildings or lands appurtenant thereto;(iii) The amount of any income derived from a business which is incidental to any of the permitted welfare activities; Profits of any business held under trust would not be eligible for concessional treatment even if such profits are to be mandatorily used for permitted welfare activities. This effectively overcomes the decision of the Supreme Court in the case of Thanti Trust, wherein it was held that exemption could not be denied to profits generated by a business of a charitable organisation which could not be utilised except for charitable activities. The only business that would now be permitted is which is incidental to the permitted welfare activities in a manner that the business itself is carried on in the course of actual carrying out of the permitted welfare activity.(iv) Full value of the consideration received from the transfer of any investment asset, not being a financial asset;(v) Full value of the consideration received from the transfer of any business capital asset of a business incidental to its permitted welfare activities;(vi) The amount of any income received from any investment of its funds or assets; and(vii) All other incomings, realizations, proceeds, donations or subscriptions received from any source.The amount of outgoings shall be the aggregate of(i) voluntary contributions received during the financial year by the nonprofit organisation made with a specific direction that they shall form part of the corpus of the non-profit organisation;(ii) the amount actually paid during the financial year for any expenditure, excluding capital expenditure, on the permitted welfare activities; It is unclear what expenditure on permitted welfare activities would encompass. Would it include salaries paid to workers at the organization, expenses on media coverage, publicity etc that may not directly benefit the public but enable the organization to do so?(iii) the amount actually paid during the financial year for any expenditure, excluding capital expenditure, on the permitted welfare activities;(iv) the amount of capital expenditure actually paid during the financial year in relation to-(a) any business capital asset of a business incidental to any of the permitted welfare activities; or(b) any investment asset, not being a financial asset.(v) any amount actually paid during the financial year to any other nonprofit organisation engaged in a similar permitted welfare activity;(vi) any amount applied outside India during the financial year if the amount is applied for an activity which tends to promote international welfare in which India is interested and the non-profit organisation is notified by the Central Government in this behalf.

The income of any trust or institution recognised/registered under the religious endowment Acts of the Central Government or the State Governments shall be fully exempt from income-tax. However, donations to such trusts or institutions will not enjoy any deduction in the hands of the donor. I have not come across any rationale for this exemption so far.

The new regime shall not apply to any person who-(a) holds any business under trust, notwithstanding a specific direction that the business shall form part of the corpus of such person or a specific direction that the income from the business shall be applied only for permitted welfare activities;(b) carries on the permitted welfare activity involving the relief of the poor, advancement of education, provision of medical relief, preservation of environment or preservation of monuments or place or objects of artistic or historic interest and also carries on a business which is not incidental to the aforesaid permitted welfare activity(c) ceases to be a non-profit organisation at any time during the financial year

In conclusion, it would appear that the provisions of the new code are perhaps unable to achieve the correct balance between incentivizing socially relevant work and preventing tax avoidance. What is definitely required are clarifications on some of the minute points raised. On a more fundamental level, it is even questionable as to why a non-profit organization that carries out welfare work the state is unable to ought to pay tax at all. An obvious concern is to avoid misuse, but is the appropriate response to impose a tax of 15 per cent or regulate the sector in other ways?

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II.

A. The Treatment of Savings Under the New Direct Tax Code

The Direct Tax Code make significant departures from the system that is in operation at present, the most significant changes being that of, firstly, an increment in the exemption amount from Rs. 1 lakh to Rs. 3 lakh, and, secondly, an alteration from the exempt-exempt-exempt system (or ‘EEE’) to the exempt-exempt-tax system (or ‘EET’). For the purposes of conceptual clarity, the two systems are explained hereinunder:

i) Exempt-exempt-exempt (EEE) – Under the EEE system the exemption is total, and there is no tax liability incurred on contributions, on interest accrued for the period of interest or on the amount withdrawn.ii) Exempt-exempt-tax (EET) – Under the EET system imposes a tax liability on the investment at the time of withdrawal alone, tax not being payable at the time of contribution or on the interest that accrues on the contribution (the last ‘T’ naturally referring to ‘tax’)

The Direct Tax Code provides for the latter system of EET, and taxes the contributions made in certain schemes for the purpose of reduction; while under the Income Tax Act, the EEE system operated. The distinction between the systems is obvious, and a rational actor would most certainly prefer the EEE system to the EET. This, however, does not imply that the same rational actor would prefer the old Income Tax Act of 1961, on the simple reason that the increase in the exemption limit counter-opposes the damage done by taxing the scheme at the time of withdrawal. The following examples will make this argument clear:

ParticularsAmountIncome from Various Sources5,00,000Deductions3,00,000Taxable Income (=Income - Deductions)2,00,000Tax Liability4,000

From the above, it is clear that the new direct tax code significantly reduces the tax payable at the time of assessment. However, it is important to remember that at the time of making withdrawal from the investment scheme that is available for deduction of taxable income, a tax liability is incurred. In this regard, the benefit still accrues to the tax payer since the interest on the investment remains tax free and only the capital amount is taxable. Furthermore, in light of the larger tax slabs under the new Code, this amount payable should be significantly lesser than the amount that is liable to be included in taxable income over above the Rs. 1 lakh exemption limit.

The preceding analysis will leave any investor jumping for joy. However, before booking the tickets for Hawaii, two important observations are in order. Firstly, there has been significant pruning of the schemes for which deductions are available, the most important ones being housing loans, unit-linked insurance policies, house rent allowances, contributions to fixed deposits and LIC premiums. This has potential repercussions on the middle-class, since these are the most popular schemes under which deductions are claimed. Secondly, the schemes are taxable at the time of redemption leaving the greatest impact on the retired, a class of people who do not have a steady source of income. However, this criticism can easily be countered by bettering tax planning for retirement, a task that will be made more simple, since there is tremendous incentive to save in the income earning years.

The trade-off is simple – the taxable amount has fallen, but the number of investment schemes for which deductions may be claimed have been significantly been reduced. The focus of the new Code, according to the Discussion Paper, is on long-term capital formation, with incentives being tremendous for the same. The greatest threat to the atmosphere of optimism that has been generated by the new Code is nothing but a change of heart by the government; and it remains to be seen whether it will see the proposals in the draft Code through.

B. The Impact of the Direct Tax Code on the Tax-GDP Ratio

The Discussion Paper claims that tax base has eroded through a steadily escalating range of exemptions. GDP growth in the years post-reform has been formidable, while the tax-GDP ratio remained low for the most of the years since. The new Code doesn’t seek to improve the situation further, and the government seems to be placing too great a reliance on the view that households and firms, if taxed lightly will increase their consumption expenditure and will invest more, and this in turn will fuel growth. The problems with this argument are simple. Firstly, it underestimates the role of public expenditure and capital formation. Secondly, it advantages GDP growth even at the cost of reducing the role of direct taxation in reducing the inequalities brought about by economic growth. Thirdly, it completely ignores the role of tax-financed public expenditure in alleviating poverty, and providing a social security net. Fourthly, the government’s assumption may be entirely wrong which result in an even greater detriment to the revenue collections, thereby off-setting the Tax-GDP Ratio even further.

C. Presumptions

The new Code makes a presumption that an arrangement is entered into for the tax benefit alone, unless it is rebutted by the taxpayer. The tax benefit is defined, amongst other things, to mean a reduction, avoidance or deferral of tax arising. The issue which such a presumption is that generally, tax statutes are to be interpreted in strictly and in a manner that provides benefit to the tax-payer, however, with this provision wide discretionary powers are vested in income tax commissioner. It is yet to be seen if this presumption will stand the test of judicial scrutiny.

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III.

A. What is tax avoidance?People eliminate or reduce tax by following a transaction or many transactions that are legal. The various methods of Tax Avoidance are: a) Legal entitiesb) Country of residencec) Double taxation

· Legal entities are a method that people follow when they want to go for tax avoidance. Under this method, people legally defer paying personal taxes by creating a legal separate entity to which they donate their property. The legal separate entity that is set up is often a foundation, company, or trust. The properties are transferred to the trust or company, as a result of which the income that is earned belongs to this entity and not by the owner. Usually, people are taxed personally on earnings and property that they own and thus by transferring property to a legal separate entity, individuals can avoid personal taxation although certain taxes such as corporate taxes are still applicable.· Country of residence is another method that people adopt when they go for avoidance of tax. Under this method, the company or person changes the tax residence to a place that is a tax haven in order to lower the amount of taxes that they pay.· Double taxation means that many countries charge taxes on the income that has been earned inside that country without taking into consideration, the resident country of the firm or person. So that people do not have to pay double taxes, once in the country where the income has been earned and then again in the resident country, many countries have gone for bilateral treaties of double taxation with other countries. This helps tax-payers as they are able to avoid paying double taxes.

B. Why is tax avoidance bad?

a) First there is substantial loss of much needed public revenue, particularly in a welfare State like ours.b) Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation.c) Then there is “the large hidden loss” to the community some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skillful advisers on the other side.d) Then again there is the “sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it”.e) Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guileless good citizens from those of the “artful dodgers”.C. Anti –avoidance principles1. Business Purpose RuleA transaction must have a main or predominant business purpose other than tax avoidance.2. Substance over Form RuleIt is basically lack of economic substance. Even if a person carries out a series of legal transactions, if on the whole the main aim is tax avoidance, the transactions will be taxed. Furthermore, sham transactions which hide the economic reality of a transaction that exists in form only are also taxable. The Code is concerned not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it.3. Step transaction doctrineUnder the new code, a series of connected transactions will not be regarded as a single transaction but rather taxed as individual transactions.D. Blurring the line between evasion and avoidanceIn India, the law is settled that tax avoidance is legal and evasion is not. A taxpayer may create a device to arrange his commercial affairs to minimize his tax liability and its acceptance is based on operation of law. While revenue authorities are entitled to decipher the true meaning of a transaction, they cannot substitute its legal effect by a perceived “substance of the transaction” without related provisions under the tax legislation for Anti-avoidance rules. However the new code proposes to introduce General Anti-Avoidance Rule (GAAR), which would erase the thin line between tax avoidance and tax evasion.· How is the new code different from the existing position?The Supreme Court in 1967 held in the case of Commr. of Income-Tax v. A. Raman & Co [1968] 67 ITR 11(SC) that avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but may lawfully be circumvented. This position was reiterated in the Mcdowell case in 1985. It was further held that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods.However, under the new code, Section 112 empowers revenue authorities to declare any arrangement as “impermissible avoidance arrangement” if it results in certain tax benefits or it creates rights or obligations which would not normally be created between persons dealing at arm’s length or it results in abuse of the provisions of the code, lacks commercial substance or lacks bona fide business purpose. It allows revenue authorities to disregard, combine or re-characterize any step in any such arrangement, or re-characterize equity in to debt and vice versa.Currently, a company is considered “resident” in India for tax purposes, if “control and management” of the affairs of such company is situated wholly in India. It is now sought to provide for a more stringent test for tax residency — a foreign company would be resident in India even where a fraction of the “control and management” of its affairs are situated in India, thus leading to worldwide income of such companies being taxed in India.The Code further seeks to widen the tax net to bring within its purview income earned from transfers, directly or indirectly, of any capital assets situated in India. The intent, among other things, seems to tax overseas income from transfer of shares of companies abroad having downstream India holdings; this controversy has also recently been a subject matter of extensive litigation by the revenue authorities at the highest judicial levels.· The concerns regarding GAAR and the wide powers of the CommissionerEssentially, whereas the tax and business group is not opposed to GAAR, the widely worded proposals require deeper reflection. A liberal interpretation of the present silent law could perhaps have led to tax leakages; we ought to learn from experiences of other countries. International experience has suggested that taxpayer uncertainty is the most frequently cited argument against GAAR. Under the proposed code, a Commissioner rank officer can invoke GAAR under (what in his discretion is) “impermissible tax avoidance arrangement”. This principle is over and above commercial substance test and any action that directly or indirectly abuses the provisions of the code. Simply stated, besides wide administrative power, this would be amongst the strictest form of GAAR legislated by a country. The taxpayer is to establish that obtaining a tax benefit was not the main purpose of the arrangement. On invoking the GAAR, the CIT may determine the tax consequences by amending, disregarding or re-characterizing the arrangement. GAAR would also override the applicable treaties, and directions of CIT would be binding on the assessing officer.· What do we mean by “tax benefits”?The main purpose of an impermissible avoidance arrangement should be to obtain a tax benefit. Tax benefit has been defined to mean a reduction, avoidance or deferral of tax, an increase in refund of tax, reduction, avoidance or deferral of tax that would be payable under the DTC .· How to address the concerns?A specialised panel would lend independence and objectivity before exercising discretion and would help to avoid prolonged litigation. The GAAR panel should focus on taxpayers’ behaviour and contentious issues, recognizing the fact that the tax administration has to exercise its discretion in a judicious fashion. Though the maximum penalty has been scaled to 200 per cent (from 300 per cent), prosecuting tax evaders, particularly the five identified non-cognizable offences, would raise eyebrows. For instance, Section 234, 235, 236, 239 and 249 (including failures to furnish tax returns, false statements in verification, willfully attempting to evade tax) have been made non-cognizable offences. There could be genuine reasons for failure to furnish tax returns or delay in payment of withholding tax. It is interesting to note that the specified non-cognizable offences override the code of criminal procedure, which is presently the case.While in general, introducing GAAR is a step in line with many of the mature economies, in India, it is apprehended that wide discretionary power provided to the tax officers may be used without a developed guiding principle. There is apprehension that GAAR could be used against even genuine transactions, thereby affecting the investment climate in the country. The introduction of GAAR must be coupled with suitable administrative and judicial reforms. ---

IV. The DTC seeks to essentially, reduce compliance cost, minimise tax avoidance and broaden the tax base. While these objectives are desirable and the need to raise collections is understandable, increase in the tax collection ideally has to be without increasing the burden on existing taxpayers; widening of the tax base has to be without alienating the existing taxpayer; and improvement in compliance has to be without harassment in enforcement. The implications of some of the provisions like exemptions, treaty override, residency and anti avoidance rules seem to have created unintended disadvantages to the Indian multi-national rendering them uncompetitive in the global market.

1. Treaty OverrideA startling new introduction in the Bill has been to introduce the concept of what is known as `Treaty Override’ [Section 258(8)(b)] in international tax parlance, seeking to neutralise the provisions of the treaties entered into by India with various countries, by providing that provisions of Treaty or Code, whichever is later in time, shall prevail. A corresponding provision in the Code, however, provides for the continuance of applicability of existing tax treaties entered into by India, once the Code comes into force. The aforesaid provisions certainly give rise to some confusion and dichotomy of views as regards ‘Treaty Override’.In this context, it would be pertinent to note that treaties are solemn obligations that should not be disregarded except in extraordinary circumstances, and, as is often done, the country overriding the tax treaties should consult with its treaty partners.

As per current Indian domestic tax laws, where the central government has entered into an agreement with the government of any country outside India for granting relief from tax or, as the case may be, for the avoidance of double taxation, a taxpayer entitled to the treaty’s benefits may apply the provisions of the domestic tax law to the extent they are more beneficial to that taxpayer. This means that a non-resident taxpayer having a source of income in India has an option to be governed by either the provisions of the domestic Indian tax laws or the tax treaty, whichever are more beneficial to the taxpayer.

It is true that the Constitutions of some countries, for example the USA, permit treaty overriding through domestic law, as under such Constitutions, treaties are ranked equal to the domestic law, with the result that they are subject to the rule “lex posterior derogat legi priori”, i.e., later law overrides the prior law. Again, there are countries like France, whose Constitutions clearly give treaties a superior position as compared to the domestic law, by virtue of which treaty overriding through amendment of domestic law is not permissible. Though the Indian Constitution does not fall under either of the two extreme categories, yet, there is support and comfort available from at least the Directive Principles of State Policy of the Constitution, in the form of Article 51, which inter-alia requires the State to foster respect for international law and treaty obligations. The issue of whether treaty benefits can be unilaterally overridden by a State through domestic laws is also a vexed one.

Tax Treaties & International LawTax treaties are governed by the Vienna Convention. Though India is not a signatory to the Vienna Convention yet the principles of the Convention can nonetheless be applied to any Indian tax treaty, a proposition which finds support from the International Fiscal Association. Article 18 of the Convention provides that a State, which is party to a treaty, is obliged to refrain from acts which would defeat the object and purpose of the treaty. Article 26 of the Convention lays down the principles of pacta sunt servanda, i.e., “Every treaty in force is binding upon the parties to it and must be performed by them in good faith”.

Therefore, any unilateral act on the part of India to override existing tax treaties through the insertion of provisions in domestic tax laws would be in conflict with Articles 18 and 26 of the Vienna Convention.

Article 27 of the Convention provides that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. Article 27 of the Convention is without prejudice to Article 46, which provides that a State may not invoke the fact that its consent to be bound by a treaty has been expressed in violation of a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of fundamental importance. The said Article further provides that a violation is manifest if it would be objectively evidenced to any State conducting itself in the matter in accordance with the normal practice and in good faith. Revenue laws are not considered as laws of fundamental importance. These are required as fiscal measurements to support the economy of the country. Therefore, any unilateral act on the part of the Parliament to override existing treaty benefits in the manner referred to above through amendment of domestic tax laws, would again contravene both Articles 27 and 46 of the Vienna Convention.

Relevance of Tax TreatiesDouble taxation treaties are essentially agreements between two countries that seek to eliminate the double taxation of income or gains arising in one country and paid to residents/companies of the other country. The idea is to ensure that the same income is not taxed twice. In many instance, however, these agreements are misused to evade taxes. This is called ‘treaty shopping’, where usually residents of a third country take advantage of a tax treaty between two countries. For example, many companies in other countries route their investments into India through Mauritius or Cyprus to take advantage of the tax treaty that these countries have with India. Both, India-Mauritius and India-Cyprus tax treaties provide that capital gains arising in India from the sale of securities can only be taxed in Mauritius and Cyprus. This means no capital gains tax on investments in securities routed through Mauritius and Cyprus, as they do not levy tax on capital gains.

To first briefly touch upon the historical importance of Mauritius in the context of total foreign direct investments in India, Mauritius tops the list with a 44% ($35.18 Billion out of $81 Billion) during the period lasting April 2000 to April 2009 (in contrast, Singapore stands at 9% and the U.S. at 7%). With a difference of 35 percentage points between the top two spots and Mauritius not being an investing country in its own right, it is anybody’s guess that Mauritius has been used as a holding company jurisdiction for making investments in India with actual investors being tax residents of countries outside Mauritius. The reasons for using Mauritius are simple: India has a tax treaty with Mauritius providing that gains on any transfer of shares in an Indian company by the Mauritius holding company shall not be taxable in India but in Mauritius as per the domestic tax laws in Mauritius. Domestic tax laws in Mauritius do not tax capital gains. Therefore, any transaction on account of the transfer of shares in an Indian company by a Mauritius holding company is a tax free transaction both in India and Mauritius.

The Indo-Mauritius tax treaty was unsuccessfully challenged in the famous case of Union of India v. Azadi Bachao Andolan and Anr. (2003)[1]. The following principles were expounded by the Indian Supreme Court in its decision:An important principle that needs to be kept in mind in the interpretation of the provisions of the international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their basis.The main function of a treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain between two treaty countries as to the division of tax revenues between them in respect of income “falling to be taxed” in both jurisdictions.In a fiscal economy, certain evils like treaty shopping are tolerated in the interest of long term development.

Perhaps it was intended at the time the Indo-Mauritius treaty was entered into. Whether it should continue and, if so, for how long, is a matter that should best be left to the discretion of the executive as it is dependent upon several economic and political considerations.

Under the draft Direct Taxes Code Bill, 2009, however, power has been given to the central government to enter into an agreement with the government of any country to provide relief from double taxation and also for the purpose of exchanging information for the prevention of evasion or avoidance of income tax. Further, the draft Code provides that neither a double taxation avoidance treaty nor the Code shall have preferential status by reason of its being a treaty or law and that, in the case of a conflict between the provisions of a treaty and the provisions of the Code, the one that is later in time will prevail. This is a significant departure. India already has entered into tax treaties with about 75 countries. Given that the draft Code would come into force on 1 April 2011 if enacted, it would be later in time with respect to all 75 tax treaties and may override them (including Mauritius).

Of specific interest to current or would-be beneficiaries under the Indo-Mauritius treaty, the draft Code provides that any income from the transfer, directly or indirectly, of a capital asset situated in India will be deemed to accrue in India and thus will be taxable in India in the hands of a non-resident. Therefore, any transfer of an Indian company’s shares by a Mauritius holding company may become liable to tax in India under the new Direct Taxes Code (once enacted) without relief from the treaty.

The consequences of this provision are likely to hamper foreign investments as well as souring relationships with these countries since these tax treaties will be overridden without any negotiation or consultation with these respective countries.

Further, the General Anti-Avoidance Rules (“GAAR”) in Sections 112 and 114 are likely to put more and more foreign transactions under the scanner because even if new tax treaties are entered into or old treaties renegotiated after the Code comes into force, anti-avoidance and abuse provisions will come into play unless it is demonstrated to the satisfaction of the Indian revenue authorities that the holding arrangement is not an impermissible avoidance arrangement. According to the GAAR, an arrangement declared an impermissible avoidance arrangement shall be presumed to have been entered into for the main purpose of obtaining a tax benefit. The onus has been put on the taxpayer to prove that a tax benefit was not the main purpose of the arrangement. The general anti-abuse rule will override the provisions of the tax treaties.

The GAAR will have, associated with it, high administrative costs. Even if a treaty that comes into force after the enactment of the DTC and has to be notified, the Advance Ruling Mechanism wherein the taxpayer will process his documentation to prove that the transaction is not for tax-avoidance, the time period for such negotiation which could be anywhere between 2 to 3 months may just be too much of a waiting period for deals which are required to be done instantly and hence may prove to further take away from India’s image of being a lucrative country for investment.

According to the researcher, there doesn’t seem to be a justification of a double-safeguard in the form of GAAR for the treaties which are likely to be signed in the future, not only because it will deter any investment due to these barriers, since most of these treaties have provisions such as “limitation of benefits” or “beneficial ownership” neatly defined (Singapore).

B. Status of Foreign CompaniesIt is indeed heartening to note that the tax rates applicable to non-resident corporates are sought to be brought at par with the domestic companies, to be taxed at the rate of 25% from the current 34 per cent and 42.23 per cent (including surcharge and education cess), thus reducing the paper-work associated with it. However, correspondingly, the concept of the branch profit tax is proposed to be introduced (which appears to be somewhat akin to the permanent establishment tax levied on profits of business carried on by foreign companies in the United States), whereby an additional tax of 15% on branch profits is sought to be levied.

The Code further seeks to widen the tax net to bring within its purview income earned from transfers, directly or indirectly, of any capital assets situated in India. The intent, among other things, seems to tax overseas income from transfer of shares of companies abroad having downstream Indian holdings (Vodafone International Holdings B.V v. UOI, 2009 (4) Bom CR 258).

Under the current tax regime, a foreign company is considered to be a resident in India, if the control and management of its affairs is wholly situated in India at any time during the financial year.

Under the DTC, a foreign company would be treated as a resident in India if its place of control and management is wholly or partly situated in India at any time in the financial year.[2] Thus, if a foreign subsidiary of an Indian company is partly controlled and managed from India at any time in the financial year, it will be considered as a resident under the Code. The catch here lies in the interpretation of partly since the terms have not been defined in the DTC and this could lead to a flurry of litigation. The partly could even be 1%.

A direct consequence of foreign subsidiaries and joint ventures (JVs) of India headquartered companies being regarded as resident of India could result in dual taxation of such companies both in India as well as in the host country, subject to availability of foreign tax credit, which will have to be separately ascertained. Thus further complicates the situation for companies which derives income from sources in more than one country. In such a case, it will be open to debate whether the amount would be restricted only to tax in respect of income sourced in that country or be available in respect of whole of the income taxed in that country. Potentially, these could lead to double taxation resulting in a higher tax cost.

Deviating from the existing provisions of the Income Tax Act, the new code has proposed to tax interest payments by non-residents where the debt has been used to earn income from any source in India. This is likely to have a serious impact on cross-border leveraged buy-outs. Thus, if a reverse of Tata-Corus deal was to happen in India, this provision would possibly impose a huge burden on the company buying-out shares of an Indian company if these leverages are to the tune of billions of dollars like in the Tata-Corus deal.

Consider an example where a US company makes a bond issue in that country to mobilise funds to invest in shares of an Indian company. Since these investments would result in the earning income (say, dividends or capital gains) from an Indian source, interest payments on bonds can now be taxable in India under the code.

Large infrastructure projects in fields of oil and gas, ports, roads, etc which typically involve foreign entity in form of an engineering, procurement & construction (EPC) contractor. Normally, the key responsibility of this contractor is to provide advance technology not available in India, for which they are remunerated by way of royalties or fees for technical services (FTS).

Normally, the arrangement between the Indian project owner and the non-resident EPC contractor stipulates that taxes on income of the contractor are to be borne by the Indian party i.e. grossing up of taxation needs to be done.

The code proposes to increase the tax rates on royalties/FTS earned by foreign entities from 10% to 20%. Consequently, the said change would imply a considerable increase in costs for Indian project owners. In such cases, the onus/ burden of proof is on the Indian party to prove the genuineness of EPC structure, especially split contracts. The code retains the presumptive taxation regime for certain non-residents providing certain services to turn-key power projects, oil & gas exploration, etc. However, the provisions as drafted in current form leave a major ambiguity as regards determination of income, which needs to be sorted out.[3]

Further more, the definitions of FTC (Fees for Technical Services)[4] now include ‘development and transfer of design, drawing, plan and software or similar services’ and Royalty[5] now include ‘right to use of transmission by satellite, cable, optic fibre, ship or aircraft and live coverage of any event’. Hence, he increase from 10% to 20% is not only just in amount but also in terms of what is being taxed.

The researcher believes that all these provisions have been framed with an intention of increasing the instances of taxation while reducing the tax-rates for foreign companies thus trying to incentivise voluntary compliance to taxation. The move also seems to try and bring as many foreign transactions under the net or conversely encourage foreign establishments to operate fully in India and be taxed at 25% alone rather than as foreign companies with additional transactional taxes and breach-profit taxes. The reason for this could be that

Thus while the tax base has definitely been broadened, there seem to be many conditional provisions attached with them. While lowering of tax rates might be an incentive for these multi-national companies, whether increasing the incidents of taxation will actually let that happen will only be seen once the Bill is approved.

C. Other provisions affecting Corporations

A. Minimum Alternate Tax (“MAT”)Minimum Alternate Tax is a tax that is levied on companies that have no tax liability as per the provisions of the Income Tax Act, although they make a profit, on account of the numerous deductions, depreciations and set-offs that are allowed. Thus, seemingly wealthy and prosperous companies are able to escape the tax net and the government loses thousands of crores of revenue in the process. In an attempt to cash in on this phenomenon of zero tax paying profitable companies, Minimum Alternate Tax was introduced back in 1984. Thus, essentially, MAT is used to calculate presumptive income so as to overcome the problemsof tax incentives and tax evasion.

According to the DTC, the basis for computation of MAT for companies has been shifted from book profits to gross assets. As a result, any company having gross assets as defined will be required to pay tax even if there is book loss. Such tax will be final without any carry forward.

While companies have been exempted from wealth tax, the 2% MAT on gross assets may be significantly higher than 25% on book profits, as it is in the Income Tax Act, 1961.[6] No provision for availing MAT credit for subsequent years is provided and the MAT exemption for SEZ developers and units is sought to be discontinued.

According to the Finance Ministry, the economic rationale for the assets tax is that investors can expect ex-ante to earn a specified average rate of return on their assets. The shift in the MAT base from book profits to gross assets will encourage optimal utilization of the assets and thereby increase efficiency.[7]

While for most functional companies this may not be an unfair assumption, for start-ups and companies that are yet to establish a business presence, it could be an additional cost to surmount.

The new 2% on gross assets could be significantly higher than 25% on book profits and will negatively affect capital-intensive companies with long gestation periods and may be required to pay MAT even in the initial years of low or virtually no profits and without deducting from their liabilities.

The other issue which in the opinion of the researcher, will arise, is that there is going to be huge cascading effect of the tax because in corporate structures, you will have organizations which holds shares in downstream company which inturn for various regulatory or other reasons have a third generation company. So each level of these companies are going to pay 2% of tax possibly without having profits especially if there are newer businesses including all the leverage which they would take on.

B. Investment Based IncentivesAnother significant change in policy with respect to corporations which has been brought about is the rationalising of tax exemptions. Traditionally, the exemptions provided were ‘profit-based’ tax incentives in form of tax holidays for a certain number of years. Since profit is the basis for exemption, there is no incentive for investment and upgradation during the period of tax holiday. Such profit-linked incentives also lead to significant loss of revenue and encourage rent-seeking behaviour. The code proposes to replace the same by ‘investment-based’ incentive, which implies a tax exemption for the period until the whole of investment made by an entity is recovered.[8]The new incentive augurs well for projects which are in high growth phase -- for example, the cross-country gas pipeline, which currently needs sustained investment for a number of years.

A significant omission from the businesses eligible for investment-based incentive is a unit in special economic zones (SEZs). The list includes only developer of SEZ, though SEZ operations are NOT included. Sixth Schedule of the DTC lists all incomes that are exempt. It, however, does not include profits of newly established units in SEZs (currently exempt under Section 10AA; profits derived from operations in SEZ facility is exempt 100% for the first five years of operations and 50% for the next five years and 50% again for the next five years, subject to reinvestment).Considering sunset clause for Section 10A/B, the IT sector has started migrating incremental business to SEZ facilities. However, if the exemption stands withdrawn, the future profitability may be subject to normal tax rates.[9]The rationale behind this omission is hard to understand, especially when development of SEZs is a primary focus area for the government.Thus, the DTC has seen a shift in policy which may or may not benefit large infrastructural investments. However, the process of graduating from the current Income Tax Act to the DTC will have to supported with really good justifications since the corporations which avail of the tax exemptions as per the 1961 Act will be left in a limbo with the change in the basis for computation of these taxes.

Wednesday, September 23, 2009

This week's session will focus on the proposed Direct Taxes Code. The discussion paper circulated with the code is the reading for the week. It can be accessed here.

The issues for discussion are as follows:

Introducing the Direct Tax Code (“DTC”)1. What are the basic objectives of the DTC?2. What are the salient features of the DTC?3. How s the DTC going to effect non-profit organisations?

Presumptions and implication of the DTC on savings1. What is the treatment of savings under the new DTC?2. What are the implications on the tax-GDP ratio?3. What are the implications of presumptions towards tax-evasion as envisaged under S. 114 of the DTC?

General Anti-Avoidance Rules1. What are the judicial principles and tests laid down prior to the DTC in terms of tax avoidance?2. Has the DTC blurred the distinction between tax-evasion and tax-avoidance?3. What are the different tests to trace anti-avoidance and what are their consequences?4. Are the powers of the Commissioner of Income Tax well defined?

Treaty Obligations and Business Transactions1. How does the DTC affect treaty shopping in light of UOI v. Azadi Bachao Andolan & Anr.?2. Will the DTC hamper foreign institutional investments (FII)?3. What is the effect on DTC on foreign vis-à-vis Indian corporations? How does this equate to the purpose of broadening the tax base?

The discussion of this topic has been divided into five main subheadings. The first deals with the detailed critique of the case National Insurance Co. Ltd. v. Minor Deepika and Others and discussed the different modes for quantification arrived at by different Courts in India and outside. The next section deals with position of law internationally, on the subject of the quantification of a housewife’s contribution while the third section deals with a law and economics model of a gender based division of labour, examining the factors that perpetuated such a gender based division - the constraints imposed on women by society and by themselves. In the fourth section of the paper, the recognition of the quantification of matrimonial property as a means of economically quantifying the contribution of a housewife is dealt with. This section looks at the idea of community property and examines the need for incorporation of such an idea into the Indian legal scenario. The last section provides an additional reason for economic quantification of the labour of a housewife by examining the judicial bias with respect to the rights allowed to a working woman and by analyzing the denial of economic opportunity outside the home.

SHWETHA –CASE ANALYSIS AND MODES OF QUANTIFICATION

This week’s topic for discussion at the CLIF was Economic Quantification of Unremunerated Domestic Services of Women or Quantification of Housewives’ Services. The main case on which the discussion was based is National Insurance Co. Ltd. v. Minor Deepika and Others[1] which is an April, 2009 Madras High Court Judgment. In this case, a minor Deepika had lost both her parents in a motor vehicles accident that took place on 26.03.1999. She made claims for compensation for the death of her father as well as her mother by filing two separate petitions in the year 2000. The Tribunal had awarded Rs.11,10,576/− as compensation in the case of the father and Rs.6,52,000/− in the case of the mother. The appellants, that is the Insurance Company claimed that the amount had been reached at arbitrarily by the Tribunal and especially that the loss of dependency arising out of the mother will have to be reduced because she was not a working woman or a partner of the firm of which her husband that is the father was a partner and that she was merely a housewife. The Court felt that the amount arrived at by the Tribunal for compensation as regards the father was correct but it however dealt with the issue of the mother in much greater detail entering into the issue which is currently being discussed at this Forum, that is, the quantification of Housewives’ Services. There are two things which are interesting observations in this case. First being that,In the case of Amar Singh Thukral and Others v. Sandeep Chhatwal and Others[2] one Mrs. Shakuntala Devi passed away and her husband and children filed a petition under the Motor Vehicles Act to claim compensation. In calculating this, the Court decided that the quantification of her household work will be Rs. 2500/- per annum and hence using a multiplier of 12 arrived at the amount of Rs. 40, 000/- to be paid as compensation. The appellants, that is, the husband and the children claimed that the compensation amount was far too low. The Court observed that in earlier cases in England dependants were to be compensated only for the value of the services lost to them by the death of a wife and mother. A wife’s companionship was ignored, likewise the grief and misery caused by her departure and, so too, a mother’s love, guidance and influence in bringing up children. Therefore the term ‘services’ was very narrowly construed. Therefore the Court opined that a narrow meaning should not be given to the meaning of the word ‘services’ but should be construed broadly and one has to take into account the loss of constant ‘love and affection’ as also of ‘personal care and attention’ by the deceased to her children, as a mother and to her husband, as a wife.In an earlier English case of Mehmet v. Perry[3] quantification of housewives’ services was done under three headings: (a)Loss to the family of the wife’s housekeeping services.(b)Loss suffered by the children of the personal attention of their mother, apart from housekeeping services rendered by her.(c)Loss of the wife’s personal care and attention, which the husband had suffered, in addition to the loss of her housekeeping services.In India, there have been cases since 1987 that have dealt with this issue. For instance in the case of Sunny Chugh v. Darshan Lal[4], it was stated by the Punjab and Haryana High Court that the housewife provides gratuitous service and had no retirement age, and her death would result in the loss of security in the family and therefore the Court awarded a compensation of Rs. 50, 000. In Jaimal Singh v. Paramjit Singh and Ors.[5], was another case where the housewife aged 40 years died in an accident in 1991. She was self-employed and undertaking stitching work apart from managing the household. The contention that she was earning by stitching clothes was rejected by the Tribunal. This Court accepted this finding but assessed her contribution to the family for purposes of cooking, cleaning, washing clothes etc. at Rs.700/- per month or Rs. 8, 400/- per annum. On this basis, her beneficiaries were awarded compensation of Rs. 1, 26, 000/- after applying the appropriate multiplier.From the line of cases it is evident that arriving at the amount of compensation depends on the facts and circumstances of each case; the economic status of the woman and her family, whether or not she was a working woman as well, what was her age and so on. In an interesting Supreme Court case concerning tort litigation, Lata Wadhwa v. State of Bihar[6] a devastating fire had broken out in Jamshedpur in March 1989. At least 60 persons, including women and children died and about 113 were injured. Supreme Court concluded that since the deceased ladies were housewives who were not earning any income, the figure arrived at by Justice Chandrachud in his report quantifying the value of their services at Rs.10, 000/- per annum for some and Rs.12, 000/- per annum for others was grossly low because these women came from a higher class of society and therefore the compensation awarded to them had to be much higher. Therefore the Supreme Court allowed for compensation of Rs.3, 000/- per month or Rs.36, 000/- per annum. Therefore in this case we find that for an unemployed housewife ‘sitting at home’ a distinction is made between one from a lower class and another from a higher class in calculating their annual income which can be seen to be a very arbitrary way of calculating it where the outcome in every case is different from the others. The fixing of the multiplier for calculation of the final compensation is another element which allows for arbitrariness to creep in. For example, in the case of Amar Singh Thukral the multiplier method with a combination of minimum wages per month was used to arrive at the final compensation. The multiplier was 16, the minimum wages at that point was calculated to be Rs. 1400 per month which was Rs. 17, 100/- a year which using the multiplier worked out to be Rs. 2, 24, 000/-. Personal expenditure was excluded to 1/3rd the amount and therefore the compensation awarded was Rs. 1, 50, 000/-. The rationale behind fixing of the multiplier is again different in each case where in some it is decided by the number of years in terms of working capacity the wife has lost by suffering from some personal injury and in others it may be based on the number of years the family may have been dependent on her.In today’s world where women have increasingly been accorded independent legal status, what is the purpose of quantification of housewives’ services and should we determine the purpose before evolving a scientific mode of evaluation of the same? The General Recommendation No.17 of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) deals with measurement and quantification of the unremunerated domestic activities of women and their recognition in the Gross National Product. The recommendation states that the measurement and quantification of the unremunerated domestic activities of women which contribute to development in each country will help to reveal the de facto economic role of women and it recommended that States should inter alia encourage and support research to evaluate the unremunerated domestic activities of women and to quantify and to include this in the Gross National Product.[7] It is recognized by this convention that most of the unpaid work around the world is performed by women and hence it is important to make an attempt to quantify the same.An important role is played by the housewife because not only does she perform various tasks at home, but she liberates her spouse to devote his energy and time and attention to his work outside by which income and property is generated for the family. Thus in calculating the value of her housework, her husband’s income becomes a very important element. Having stated this, the different modes by which unremunerated domestic activities of women are quantified can be looked into. This can be looked at through two perspectives. First, where, as a result of injury or death, the services of the housewife have been lost and second, where as a result of injury, additional services have to be provided.In National Insurance Company case which looks into the first perspective lays down the following as the modes of quantificationMotor Vehicles Act, Second Schedule- gives a value to the compensation payable in respect of those who had no income prior to the accident and for a spouse, it says that one-third of the income of the earning surviving spouse should be the value.The opportunity cost which evaluates her wages by assessing what she would have earned had she not remained at home, that is what is the opportunity lost.The partnership method which assumes that a marriage is an equal economic partnership and in this method, the homemaker’s salary is valued at half her husband’s salary.The replacement method which evaluates homemaking by determining how much it would cost to replace the homemaker with paid workers.From a general reading of the cases dealing with this issue in India, it comes to light that Courts either determine the compensation on the actual cost of hiring a replacement of her services, or a more general assessment of the value of the housewife’s services based on the current cost of domestic labour. In the article “What is a Wife Worth”[8] the authors mention the three broad factors taken into account when the services of the housewife are lost owing to death or injury. They are expenses or financial dependency (funeral, replacing her service with that of a cook, house maid, medical care and so on) earning potential or service dependency (income she may have earned had she been alive or had not been injured) and non-pecuniary losses or moral dependency (loss of love, care and affection). The authors also mention that in practice, the loss of the housewife’s services is always treated as being the husband’s loss rather than the wife’s, that is, it is seen as the loss of a service which the husband “owns” rather than a loss by the wife of the capacity to do a particular kind of work. I feel that this stereotype along with others such as the mother finding fulfillment at home with her children, while the father spends his day away from the home earning money to support his family needs to be changed.Critiquing the JudgmentIn National Insurance Co. Ltd. v. Minor Deepika and Others, the Court is not clear as to where these modes have been taken from, whether they have been effectively implemented and for what purpose they have been implemented. Thus, a very hazy picture is painted as regards which mode the Court thinks is most beneficial or practicable. Even after discussing all these modes in detail and speaking about how assigning economic value to the work of the house maker is an important task which must be undertaken, the final conclusion arrived at sticks to determining compensation as under the Motor Vehicles Act which by itself has its shortcomings. The amout of one-third the spouse’s interest is arbitrary. What is the justification behind the ‘one-third’ amount? The Court felt that while the option under the Motor Vehicles Act could be used to determine the value of the mother, the time had come to scientifically assess the value of the unpaid homemaker both in accident claims and in division of matrimonial property but they themselves never actually take any significant step in that positive direction. Even after this judgment, the lacuna in the law still remains. Despite the positive changes in society in terms of accepting more liberal notions of women’s rights, is our Judiciary lagging behind? I am of the opinion that the Judiciary through judgments such as these only brings out half-baked ideas about quantification of household services performed by women. What emerges from their views in the judgments continues to reflect the stereotypical notions about housewives which is exactly what we are trying to overcome.

Out of the three methods, I feel that the one of non-pecuniary losses is the most under-estimated. The value of the wife’s constant attendance, her help with homework and instruction on essential matters to do with upbringing, cooking for her family, cleaning the house, attending to guests and so on cannot be equated to that of any other ordinary case of calculating compensation. Let us take the example of the National Insurance CO. Case itself. The compensation under the heading of loss of love and affection for the father was Rs. 25, 000/-. However, the compensation under the same heading as regards the mother was even less, that is, Rs. 20, 000/- . Hence a uniform, fair and gender neutral mode needs to be developed.As the law stands at present, a person who suffers some physical injury or death as the result of another’s tort has a right to compensation. One can compare and see that when a breadwinner of a family suffers such injury, factors such as him being the sole breadwinner, or that his family needs his support are taken into account and accordingly the compensation is increased. Thus, should this not be done even in the case of the housewife when her services are lost or in some way impaired owing to the amount of carework she does for her family and the household? What about the cases where she has to care for another injured member of the family. In such a case she is effectively doing the work of a hired nurse and this involves some extra effort apart from her already busy work schedule. Can such services also be taken into account when compensation is claimed in tort action claims?Even in the field of Insurance law, as is specifically dealt with in the case for study, we find that no fixed mode has been adopted. Courts are now slowly accepting the fact that a woman’s unremunerated household or domestic service must also be accounted for. CEDAW and other International Laws such as The Australian Family Property Law, the recommendations of the National Organisation for Women, USA have opened up the arena for discussions on the economic rights for homemakers. An article in the Hindu by Geetha Padmanaban called “What’s her take-home?”[9], discusses briefly the contents and impact of the judgment in the National Insurance Co. Ltd. v. Minor Deepika and Others case. In this article the author highlights the positive impact of the judgment and shows how several women feel very optimistic about the way the Madras High Court have viewed their rights. In a BBC News Article, “Housewife would be paid £30,000”[10], it was stated that in a poll of 4,000 housewives conducted by alljoinon.com, the average housewife worked for nearly nine hours a day every day which means she would earn almost £30,000 a year if she was employed to do all the same errands. Thus this aspect of women’s rights is being taken forward in the positive direction world over. Thus our judiciary must also move away from stereotypical notions of unremunerated domestic activities and actively initiate discussions on this issue.

ATUL –THE INTERNATIONAL PARADIGMThe issue of recognition and quantification of household work by the wife has long been a part of family laws in various countries. Section 25(2)(f) of the Matrimonial Causes Act 1973 (Eng) clause 18 in England and Wales directed courts to consider, while assessing the property share, the contributions of each of the parties to the welfare of the family, ‘including any contribution by looking after the home or caring for the family’. In the United States, Alternative B of the influential Uniform Marriage and Divorce Act required judges to consider a number of factors, including ‘the contribution of each spouse to acquisition of the marital property, including contribution of a spouse as homemaker’. Also, the Convention on the Elimination of all forms of Discrimination against Women (CEDAW), through its General Recommendation No.17, recommends the States Parties to encourage and support research to evaluate the unremunerated domestic activities of women and to quantify and to include this in the Gross National Product which, in turn would help in revealing the de facto economic role of women.However, the most interesting legal position is in Australia where Section 79(4)(c) of the Family Law Act 1975 provides that the Court should consider, as one of the factors in property distribution, ‘the contribution made by a party to the marriage to the welfare of the family constituted by the such parties their children, including any contribution made in the capacity of homemaker or parent’. It must be noted that this issue in Australia is with respect to property distribution which generally arises during divorce. The position is different from the India as unlike the Indian concept of community property, the husband and wife have separate property system in Australia. In this opinion, I seek to address two aspects of Australian law on the issue of quantification of homemaker contribution. Firstly, the rationale behind the need to quantify homemaker contribution and secondly, the method adopted by the courts to measure and quantify such contribution.

PRINCIPLE OF JUSTIFICATION: As per Australian Courts, the justification for examining the homemaker contribution in property division is not in the household work that has been performed but the sacrifices made and the opportunities forgone which have an economic impact. The performance of household tasks does not itself have a financial impact which ought to be compensated by property transfers because even the husband confers many benefits on the wife. The homemaker contribution is less relevant for what homemakers do than for what they do not do instead. So, it is an opportunity cost which occurs when a person withdraws from, diminishes or restructures workforce participation in order to concentrate efforts on looking after the home and family.Also, the purpose of assessing the homemaker contribution is to recognise its significance in the overall socioeconomic partnership, ensuring that women were not disadvantaged by their role specialisation. Because of that responsibility she may earn no income or have only small earnings but they indirectly contribute to the acquisition, maintenance and improvement of property. It was once famously said by the Court that the cock can feather its nest because it does not have to spend most of its time sitting on it. The homemaker contribution was therefore understood as having a relationship to the earnings of the other spouse because it freed that person to concentrate on earning activities. Thus, her contribution should be recognized not in a token way but in a substantial way.In addition to all this, the mother's specialisation in caring for the daily needs of the family represents an indirect investment in the earning capacity of the primary wage-earner, and his success in the workplace is to some extent their success as a partnership. If this relationship breaks down, then both lose out on their investments. For fathers, that loss is a caretaker of the house and himself and may be proximity to the children depending on the custody of the children. But for women, the lost investment is in her partner's long-term earning capacity, since her specialisation in child-rearing has been an investment in his career success or the development of his business, assuming that he is in an occupation or business with a growth trajectory.

PRINCIPLE OF QUANTIFICATION: Keeping these principles in mind, homemaker contributions can readily be quantified if they are compared with the complementary efforts of the other partner by giving to those contributions equal weight irrespective of the roles the partners have undertaken. Couples who begin with modest assets and build up assets over a period of time through their efforts and investments should be treated as having contributed equally to the fruits of their socioeconomic partnership, and, with the exception of the rare cases invoking successfully the notion of special contribution or skill, they are. Thus, with regard to the quantification of household work there isn’t a big problem. However, the trouble comes when many of the assets do not represent the fruit of marriage partnership. Can the homemaker contribution yield any claim in relation to assets acquired other than by the efforts of the parties during the course of the marriage? These issues arise mostly in three types of cases- property acquired before marriage, inherited during marriage and acquired after separation. There have been two approaches that the Courts in Australia have followed in such cases. First is the Nexus approach. It means that there must be some logical connection between the contribution claimed and the financial circumstances of the parties so as to justify apportioning some of that property on the basis of contribution. An important case in this regard is Jacobson v. Jacobson where nearly four years had elapsed from the time of separation to the trial. In this period, the husband had acquired two properties, to which, he argued, the wife had made no contribution. The wife, in the meanwhile, had had the onerous responsibility of caring for their teenage boy who was intellectually disabled. This was treated as a contribution to the husband's post-separation earnings because the wife's care for the child after separation left the husband ‘free to pursue his income-earning activities to the fullest extent’. Second is the Balancing approach. This approach involves the Court in abandoning the requirement of a nexus between the homemaker contribution and assets acquired other than through the joint efforts of the parties. The judge is meant simply to consider all the different kinds of contributions, giving such weight to each as he or she considers appropriate, and placing them in the balancing scales with one another. As for example, in Shaw v. Shaw the husband brought significant wealth into the marriage but it was largely dissipated during the course of the 12-year marriage through luxurious living. At the end of the marriage, less than $2 million remained. The Court took the view that it should place a value on the wife's contribution even though there was no gain in wealth to which she could be deemed to have contributed. The wife, who had nursed her husband through a serious illness, was awarded 10-12 per cent of the husband's remaining property by way of contribution. This case, thus, established that a spouse can make a homemaker contribution which entitles her to a share of assets brought into the marriage by the other even though the effect of their marriage partnership has been mainly to spend, rather than acquire wealth. The Balancing approach has been criticised from many corners. One of its criticism is explained by the gold bar example. Does it matter whether a party enters the marriage with a gold bar or inherits it on the last day of the marriage? Where the gold bar is inherited at the end of the marriage, there can be no real question of rewarding the homemaker contribution, for there is nothing in the fact of its existence which is capable of yielding a principle of justification or quantification. This is an open ended question as the Courts have been keen in following both the approaches. Thus, the Australian law has been quite liberal in interpreting the law related to quantifying the homemaker’s contribution. But, is this approach appropriate with respect to the Indian conditions? Should the contribution of wife be taken as just any person doing household world or should she be considered as a partner in the socioeconomic partnership of marriage? Should she be compensated for the opportunity cost involved? These questions must be answered if we seek to apply these principles to the Indian scenario.

MEGHNA –Gender Based Division of Labour

Manner in which Gender Bias in Division of Labour developed over the years:According to Levi-Strauss, culture began with the exchange of women by men in order to cement bonds between families, thereby creating a society. Men thus benefit more than a woman from these social bonds and the division of labour between the sexes is a hierarchical one.[11] Another problem faced by women from Third World countries from tribal groups was the presence or arrival of the Western colonial administration. The Europeans encouraged men to head and support their families, superseding women’s traditional responsibilities. They entrusted local governance to male leaders and ignored women’s traditional participation in tribal society. The fact that these women were organized and had non-hierarchical governmental structures was not known to the colonists. Hence tribal groups lost their collective responsibility and came under the authority of their husbands. Women’s work became private for the benefit of their husbands rather than public for the benefit of the kin group. Thus it shows that there is an increase of sexual stratification along with the process of social stratification. Hence there is a decrease in the social status of a woman as there is now a change in production methods. This control is maintained directly by the man in the family but sustained by the State and religion.[12]With the emergence of capitalism there is the creation of a wage-labour force. Labour was expanded by the removal of people from land, their subsistence base, so that they would be forced to work for wages. Wage expansion was done by having increased banking facilities and profits from slave trade and colonial exploitation. Hence domestic industries which had been created, where women used to participate in along with the men was destroyed with the process of industrialization.[13] Hence capitalism used these differences in family structures to perpetuate gender division of labour, by removing work from home; there was a further subordination of women. Thus men became less dependent on women for industrial production and women more dependent on men economically. Women’s subordinate position in labour market reinforced their position at home, which in turn reinforced the labour market. Through the use of trade unions associations and change in technology the job segregation was enforced and the domestic division of labour which required women to do house work and child care further perpetuated this segregation. Capitalists used women as unskilled, underpaid labour to undercut male labour wages, only to perpetuate a huge gender division of labour. Hence capitalism and patriarchy were the forerunners for the gender based division of labour that is currently seen.

Types of Occupational Segregation of Labour:Two forms of occupational segregation are firstly horizontal segregation where men and women choose different types of work. For example personal secretaries are usually female and clerks are usually male. There is not much difference in the work provided but clerks are inevitably paid more than secretaries. Secondly is the vertical segregation which occurs when men typically work in higher grade posts and women in lower grade posts, for example a doctor is usually male and a nurse a female or when men are promoted higher up career ladders within occupations.[14] Hence there is a difference in sex earnings. Women are usually concentrated in the lower paying primary sector or lower grade posts. High vertical segregation within an occupation is highly prevalent with the proportion of women declining at each step up the career ladder. Absence of women in higher posts of decision making means that their interests are also not being looked after. Women need to exploit labour shortages as vigorously as male workers do, demand for access to higher grade of jobs through promotion, training and choose less undervalued work rather than making demands for only convenience factors such as flexible hours and workplace crèches.[15] Vertical segregation is hence a common way in which gender division of labour is seen.Equal Pay for Equal Work?The doctrine of equal pay for equal work is enshrined in Article 16(2) of the Constitution of India. It is based on the concept that as long as people are employed and doing the same category of work, they should be equally paid and discrimination based on sex should not be allowed. According to a theorist, Millicent Fawcett, the equal pay for equal work was fraudulent concept for women since women had been kept from obtaining equal skills at work and was not in fact equal.[16] Hence when there is discrimination against sexes at grass root level, laws providing for equal opportunity or pay falls flat as women do not have the qualifications or skill or education to compete for the same. On the other hand, there have been many theorists who believe that this concept is flawed. It was believed that since men have greater family responsibilities and duties, they should be given greater pay. The participation of women in the labour market and equal competition would only reduce the wages received by men as women require 20% less food for efficiency. This is based on the flawed concept that women have a general lower standard of living and are willing to work for less. Another concept that was used by Unions and in fact perpetuated unknowingly by social feminists was the concept of protection for working women, that women as a sex were weaker and hence required greater protection. An example is the case of Muller v. Oregon[17] where the Supreme Court of USA upheld the maximum hours concept for women based on the body structure of the women and her capacity to work for long hours as well as the ill effects it would have on her future race![18] Thus the concept that women are less efficient then men were further perpetuated.Another interesting concept is the way in which data is collected and the provision of developmental schemes in rural India. When the census is taken usually the men are assumed to be the head of the family and data is taken from them, even though the woman does most of the agricultural work.[19] Hence training and practices to improve their skill is given to the men and not the women. Land titles are also granted in the name of the men. There is also the problem of gender bias during the time of data collection. This can be based on the gender of the Enumerator, or the cultural perceptions or even the way in which the questions are asked. Even here is the problem of the woman having the tendency of identifying themselves as only housewives when they are economically active. Thus there is an underestimation of her content of economic production as it is considered to be a part of the domestic duties. A housewife is considered as a non-earning dependent as per the 1951 Indian Census.[20] In 1961 Indian Census the definition of a worker was based on gainful activity rather than earnings; however the activity referred to external employment. In 1971 it was more biased with those being considered as worker only for those who reported their economic activity as their main activity. Thus those women whose main activity were domestic work or due to cultural biases assumed it to be domestic work were counted as non-workers. In fact instructions were placed that a servant working as a cook would be considered economically active but not a woman who cooks in her own house for her family. In 1981, working has again been defined as participating in any economically productive activity. However this again does not consider the domestic work done by a woman. Further even when labour time is measured, the standard being eight hours, the female labour’s time is calculated as ½ or ¾ of the standard time based on the assumption that women are less efficient.[21] There is also a sex-typing of tasks so comparative efficiency between female-male cannot be made.

Perpetuation of this Division by Women Themselves: Constraints that female workers face are not just the dual role they play in the capitalist society (being a form of cheap, unorganized labour as well as a domestic work), but in also the woman’s own aspirations, the way in which they grow up, prepared to accept their role in the sexual division of labour.[22] Also known as the poverty of aspiration as women have a certain concept of woman’s work , hence a large number of girls associate femininity with domesticity, a role of a mother and wife that has been transmitted by family, peer groups, media and even by schools. Hence we see girls from a lower income class using employment as a stop gap between education and marriage and women from higher income families, choose those jobs based on their schooling to those stereotyped, low income professions which provides a notion of equality of opportunity.[23] It is a relationship between two structures of control of class and gender, based on which girls are willing to accept their future roles.

Additional Barriers that Women Face:Women are inevitable considered as secondary workers or supplementary earners. During the 1980s India a saw rise in the participation of female labour in export oriented industries and it was considered as the feminization of labour, but it was later found out that these women were following regressive methods of employment and were the poorest paid in the chain of production.[24] Another problem that women face is that they enter the labour market in a much later stage after the completion of their reproductive roles of child bearing and rearing. Hence they lack a head start in comparison to men as well as their ability to work at an older age may not be as efficient. Further many women lack the education as they are considered as future homemakers and a waste of investment. Hence their skills are not very high. Many women though educated, if they are from are from better-off households, they abstain from working. Thus it is mainly the women from lower income families who work in a desperate urge to survive and thus they get exploited with low paying jobs as well as the fact that they also have very low level of education or skills and inevitably low paid.[25] Women are also are unable to participate in the labour market due to the fact that they are burdened with domestic chores. Thus women are considered as a cheap form of labour or efficient only for part time work.Thus the gender division of labour has been perpetuated over the years by various social aspects of patriarchy and subordination which was later exploited using economic factors. Women themselves have continued this concept by enabling a poverty of aspiration and not limiting their job opportunities by burdening their abilities with domestic chores.

RADHIKA –Recognition Of The Right To Matrimonial Property As Means Of Quantifying The Economic Contribution Of A HousewifeThe housewives are the largest unpaid labour force in India.[26] However, domestic work is not visible as a result of the restricted definition of what economically productive work is. The work done by the housewife is often overlooked, but for the same work, people may be hired and remunerated for their services. The National Insurance Co Ltd v. Deepika[27] case itself talks about the fact that the monetary quantification of the housewife’s work has never really been addressed. This case goes beyond dealing with a mere accident claim and raises important issues of division of matrimonial property, which has far-reaching repercussions. It is in the event of the dissolution of a marriage that the question of division of matrimonial property and the quantification of each spouse’s economic contribution arises.

There are broadly two types of property relations between the husband and the wife, namely(1) Separation of property system- In this system, the husband and the wife can independently control their property and there is no sharing of assets. The consent of the other spouse is immaterial regarding property decisions. However, marriage here, is not recognised as an economic partnership. On the dissolution of marriage, the wife is entitled to limited property rights as per the personal laws and to maintenance. However, the property mostly belongs to the wage earning spouse who may choose to disinherit the other spouse by way of wills. The maintenance amount granted may not be sufficient to maintain the wife either.(2) Community of property system[28] - this system of division of matrimonial property prevails in civil law countries and is based on the notion of partnership of property. The spouses may enter into a contract with respect to their properties before marriage. The ownership and management of the property is joint, the assets are predetermined and in the event of dissolution of marriage either by death or divorce, each spouse gets a half share in the assets.

THE INDIAN SCENARIO

At present the concept of matrimonial property does not exist in India. In India, unlike English law, where husband and wife are considered to be one entity, classical Hindu law recognises the existence of man and wife independent of each other and the principle of separation of property between the husband and the wife was fully recognised. Hence a spouse cannot lay claim to the property of the other spouse, in excess of what has been stipulated by the personal laws. An interesting example to illustrate the separation of property principle would be that of stridhana or woman’s property. Whether stridhana is the joint property of both the husband and the wife has been a much debated issue. In Pratibha Rani v. Suraj Kumar[29], it was held that the stridhan property of a woman did not give the husband a joint interest in such property. The husband was the ‘mere custodian’ of the wife’s stridhan and the failure to return such property which had been entrusted to the husband or his relatives would constitute breach of trust as defined under S. 405 of the IPC.

The question of quantification of a woman’s contribution, manifested in the share of matrimonial property she is entitled to, arises in two cases:(1) ON DEATH: In all personal laws, the spouse gets a certain share in the property of the deceased spouse which fluctuates depending on the presence of other kindred. Under Muslim law, the property rights of women are not at par with men. Among the Shias, the share of the male spouse is double that of the females. Similarly under Christian law as well, the father is better placed as far as property rights are concerned. [30] Moreover, under all the personal laws, the wives can be disinherited through wills. This clearly shows that the existing personal laws do not equally value the contribution of the husband and the wife to the accumulation of assets during marriage, the husband’s contribution being valued more in almost all laws.

(2) ON DIVORCE: Under the Hindu law, on divorce, the woman has no right to claim a share in the husband’s self-acquired property. In the event of breakdown of marriage, only the husband’s title to the house is recognised, clearly overlooking the woman’s contribution in terms of the effort and care put in by her while looking after the home and the family members. The man, on divorce becomes the exclusive owner of all the family assets and the income and the woman is left with pittance in the form of maintenance or alimony.[31]The role of alimony, ideally, is to compensate the wife for the opportunity costs incurred by her by entering into the marriage and investing in it as well.[32] However, maintenance is generally seen as a ‘dole’ given to women and not as a matter of right.[33] It is taken to be an act of compassion rather than a quantification of the effort put in by her in the marriage. The wife on divorce, loses out much more as compared to a man. She may lose out on a right to reside in the matrimonial home or adequate standards of living as the maintenance amount granted is more than often, not enough.

THE WAY FORWARD

‘… the time has come to scientifically assess the value of the unpaid homemaker both in accident claims and in division of matrimonial property...’[34]

The existing laws are ill-equipped to recognise and quantify the ‘invisible’ work of the housewife. Some people are of the opinion that such work being invaluable, it is not possible to quantify it. However, the housewife may not have an independent source of income and her stridhana may not be sufficient for her to lead a comfortable existence. Moreover, in certain cases, it is because of the gendered norms in society and the sexual division of labour, that the wives are denied the opportunity of going out and working. This should not have the effect of denying them their right to matrimonial property which involves their contribution as well, and she should in fact be compensated for the same. Hence, there needs to be a law which recognises the fact that the accumulation of assets during the subsistence of marriage is a result of the joint and equal efforts of both the husband and the wife.The model of ‘community property’ could possibly be adopted in India, where in the event of breakdown of marriage all assets should be equally divided.The idea behind the community property is that the spouses contribute equally to the common savings, one of them by going outside to work and the other spouse by staying at home and managing the household and aiding his work as well, hence both are taken to have equally contributed to any property acquired.[35] However, whether the system of community of property will be feasible in India needs to be considered. In India, owing to the inherent gender inequalities the concept of joint ownership and management may not work, as the women, traditionally confined to their homes, may not be in a position to exercise their right and supervise the management of their property, leading to more and more control vesting with the husband, the creditors of the husband may also try satisfying their debts from the wife’s property.[36] Another problem could be that both may have conflicting interests as regards what they wish to do with the property. Finally it may defeat the purpose of women empowerment where the husband does not work either inside or outside the household, but by virtue of this provision, may be able to get one half share in the hard-earned property of his wife. This also raises an important issue of the quantification of the work of housewives belonging to different strata. In my opinion the same principle of quantification cannot be applied to a housewife who hails from a well-to-do family where she has help for all the domestic services and hence does not have much non-pecuniary contribution, and a woman who hails from the lower rungs of society and is expected to do both the household work as well as work outside without much contribution from the husband. Does the contribution of the housewife from the well-to-do family and the unemployed husband who does not contribute to the running of the household, need to be quantified at all?Hence in India, the system of ‘deferred community of property’ may be adopted which tries combining the positive features of the two principles of separation of property and community property, wherein, the spouses have independent control over their assets during the subsistence of marriage and it is only on dissolution of marriage that the assets are equally divided between the two. However, adequate safeguards need to be provided to ensure that the spouses don’t interfere with the rights of the other spouse and in the event of that happening, the spouse may have the right to claim his/her share in the assets. Other safeguards could be considering only property acquired during marriage as joint property which would exclude assets acquired and gifts received before marriage and would help protect the traditional rights over stridhana. Short duration marriages may also be excluded from the application of the deferred community of property system in order to prevent viewing divorce as an attractive option. However, another difficulty in applying this system would be the fact that in cases, the division of assets may become acrimonious and spouses may be found guilty of hiding property and not bringing it into the fold of community property such that it is not liable for division between the two spouses. On the discovery of the above fact, provisions could be made to for punishing the erring spouse.Finally, the contribution of a working woman also needs to be examined. Presently, the wife’s earnings (money or property) acquired by her during her marriage will be recognised as her separate property, as per Section 4 of The Married Women’s Property (Extension Act), 1959. However the fact that quite a few women have ‘broken the glass ceiling’, does not mean that the gendered norms are no longer prevalent and still there is no equality in the household. In fact the woman often ends up doing double the amount of work, juggling her professional responsibilities and her duties towards her family, hence in such a case should her contribution be doubly recognised and doubly compensated? A possible solution could be the introduction of the community property system because anyway, in modern times both the spouses contribute almost equally to the assets and should be entitles to an equal share in matrimonial property.Hence at present, the denial of economic opportunity to the woman, through the ways the laws and policies are structured in our country, makes out a strong case for the recognition of the contribution of a housewife by giving her rights in the matrimonial property.

AKANKSHA –The Woman’s Right to Economic Opportunity

In light of the present Indian legal position on the quantification of the economic contribution of the housewife, it is extremely important to look at her opportunities for employment outside the home. For, if the housewife’s effort within the home is not attributed with any economic worth, it is essential that she be able to have some way to attribute economic worth to herself. At present, she seems to be stuck between a rock and a hard place, with no chance of quantifying her household contribution and a judicial bias to her working outside the home.Through this paper, I will briefly examine the attitude of the judiciary to the working woman and highlight the need for change in such attitude, so that women are allowed the right to economic opportunity.One of the most obvious areas in which the discrimination women face comes to light is that of the determination of the matrimonial home and the advantages that go with it.Matrimonial HomeThe matrimonial home has been defined as “the common home of the spouses where both of them are expected to live together till circumstances permit, in order to share a common domestic life.” Living in a matrimonial home is said to be the right and obligation of both the spouses.[37]The High Courts of different states have differed on the issue of who should have the right to determine the location of the matrimonial home. While in some cases it has been held that it is the sole right of the husband[38], in others it has been held that it must be determined at the convenience and benefit of both husband and wife[39]. There is no single trend that has been followed by the courts, yet in majority of the cases, the right to locate the matrimonial home lies with the husband. As of yet there is no judgment by the Supreme Court on the location of the matrimonial homes, which will help to lay at rest this controversy.Restitution of Conjugal RightsPrimary amongst the issues associated with the matrimonial home is the concept of the remedy of restitution of conjugal rights– “companionship in the fullest sense between each of them, an entertainment of mutual friends, sexual intercourse”[40]. It allows for a spouse to file for restitution in a case where they have been abandoned in the matrimonial home by the other, to enable them to enjoy all the rights that come with the union.In the most recent cases that deal with restitution of conjugal rights and women’s employment[41], the question of the location of the matrimonial home did not even arise; it was implicit that it would be at the husband’s residence.The consequence is that, if a woman is working in a different state/ city from her husband, because she gets a promotion and wants to retain her job and at the same time maintain her marriage, what is she to do? If her husband does not approve of such a job or does not desire her to take it up, whatever the reason, he can file for restitution of conjugal rights and force her to rejoin him in the matrimonial home. However, when he gets a transfer, she is forced to accompany him. By taking such a step the courts are effectively ensuring that women do not have the right to pursue a career of their choice within a marriage as, if the woman’s career causes her to move out of the society of the husband, he can move the court for the restitution of conjugal rights and force her to rejoin him at his place of employment/ residence. By making this sort of provision unilateral, i.e. by allowing the husband to choose the matrimonial home and ensuring that the wife must accompany him, the court is only re-enforcing gender stereotypes and furthering the perception that it is the male members of a household alone, who are capable of earning and that their jobs are of greater importance than those of women.In cases where the wife is earning a sum less than the husband, the courts have almost unequivocally granted restitution, saying that there is no need to augment the family income. However the need here is not the augmentation of family income but the liberation of women from the shackles of a patriarchal society by allowing them a means to stand on their own two feetThe reasoning behind the decision of the courts to allow the husband exclusive rights to determine the matrimonial home has been put forth in the case of Kailashwati[42] and it reflects the bias of the judiciary. According to this case, since the husband has been burdened with the legal obligation of providing for his wife and child, he should have the right to choose the matrimonial home. This argument is circuitous as it presumes that the wife is incapable of supporting herself and because of this incapacity denies her the right to have a say in the location of the matrimonial home, which in turn reduces her ability to earn and to support herself.CustodyAnother disadvantage of this stand of the court is that women face the fear of losing custody of their children. Even if they have just cause for living apart, this fear persists, as they are not allowed to move children outside of the matrimonial home and can be charged with kidnapping if they do. If the children settle down in the environment provided for them by the husband, the court will be reluctant to award custody to the mother and to re-locate the children. Thus some mothers take to removing the children from the matrimonial home by stealth. Though the courts will rarely hold a biological parent liable for kidnapping, the fact remains that a charge can still be filed against the wife and to ensure that women who live away from their spouses also have equal rights to child custody, there is a need for some reform to the present legal position.[43]Additionally, the court seems to biased against the working woman – some courts have held that with the societal shift in urban areas, it is not possible to grant custody to the mother, as she, with her job will not have sufficient time to devote to the children[44] the Courts however, seem to ignore the fact that the husband too has a job and so the same reasoning should apply to him too! In many cases however, the court has held that the parents of the husband who live with him, will take the role of caregivers rather than the parents. This does not change the fact that the husband and wife remain in the same position with respect to their ability as caregivers and this factor should not be allowed to determine custody. Recently however, some courts however have held the opposite[45] – that a woman cannot be denied of the custody of her child merely because she is employed and this is a heartening trend.

The Social and Economic Basis for this Judicial AttitudeMen use their superior societal position to ensure that it is they who decide how women work, where they work and whether or not they work at all. Thus men derive a definite economic benefit from patriarchy, which gives it a material basis for existence.[46] The stranglehold that patriarchy had on our society also contributed to the notion that women did not have a role beyond that of a consort. It created gender stereotypes that advocated the idea that men were supposed to earn, to provide a home for their families and to protect their wives and women were supposed to be homemakers, to be obedient and to accompany their husbands as and where they went. These stereotypes were strengthened by the fact that women had been schooled not to ask questions, and so were content to accept status quo.The judiciary – comprised largely of men has shown a tendency to rule in favour of restitution rather than the right of a woman to independent employment, thus showing the patriarchial tendency to behave in a manner that exerts control over women, ensuring their economic subordination. Such is the social conditioning, that even women judges have often ruled in favour of the men, citing the same reasons – the right of the man to have his consort with him, the inability of a working woman to have custody of her child etc. The judiciary, which has always looked to protect the institution of marriage, no matter what the cost, is willing to sacrifice the woman’s economic independence in order to bring the spouses back together.RecommendationThe recommendation of the researcher is that the courts should recognize the existence of two matrimonial homes, one at the place of residence of the husband and the other at that of the wife. This will allow the wife to pursue employment at a place other than that of the husband’s residence, allow her to keep her children with her if she so wishes and also allow her the right to demand that the husband visit her to uphold her conjugal rights changing the provision from a unilateral one to one that works both ways. There is no reason why the man cannot change his residence in accordance with the job of the woman – no reason at all, why she should be compelled to follow him when he changes jobs or gets transferred, at the expense of her economic independence.

There is thus a need for change in the judicial attitude to allow for an atmosphere that is more conducive to the rights of a working woman. The possibility of two matrimonial homes should be considered and the sacrifice of the woman’s economic aspiration for the ‘saving’ of the marriage should stop.